(Photo: REUTERS/Bruno Domingos)
In Latin America, Brazil
Brazil has a positive outlook and high economic strength because its large and growing domestic market and a high degree of diversification is mitigating the impact of adverse global market shocks, says ratings agency Moody's Investors Service
In a series of annual reports that assess the credit of individual countries, Moody's said that Brazil's fiscal profile is characterized by government revenues and expenditures that have been consistently high in absolute and relative terms.
"Government revenues of some 37 percent of GDP are comparable to those seen in richer economies," said Moody's in its "Credit Analysis: Brazil" report. "Coupled with government expenditures nearing 40percent of GDP, this has led to fiscal deficits of 3 percent to 4 percent of GDP. Even though government debt ratios have been relatively high, reaching 55 percent to 60 percent of GDP they have reported a moderately declining trend in recent years."
The BRIC country, which has now surpassed the UK as the sixth largest economy in the world, has a relatively diversified economic base, which translates into limited concentration risks, as well as a low likelihood that political events could lead to policy reversals.
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"Tax and pension reforms are required to remove structural obstacles that limit the medium-term upside for Brazil's rating," said Moody's. "A robust banking system characterized by strong capitalization and high liquidity ratios translate into moderate financial risks, including those associated with the potential systemic impact of credit booms."
The Latin American powerhouse
The Bric countries, Brazil, Russia, India and China have all grown and developed dramatically since the early 1990s.
While previously seen as emerging markets that carry high risk, in terms of investment, the Brics have managed to become a collective powerhouse.
Being somewhat overshadowed by the magnitude of China, India and Russia's economy, energy and commodities trading potential, Brazil has actually grown to such a size that its economic size overtook the UK in the global rankings.
Since 2003, Brazil steadily improved its macroeconomic stability, building up foreign reserves, and reducing its debt profile by shifting its debt burden toward real denominated and domestically held instruments, says the US' Central Intelligence Agency (CIA).
Only five years after this Brazil became a net external creditor and two ratings agencies awarded investment grade status to its debt.
The Latin American country has had a modest growth in GDP over the last year, but is still in better shape than most Western economies that are battling a second recession and bailouts.
Brazil's economy expanded by only a fifth of a percent in the first quarter this year, but is somewhat in line with incremental growth charts which show GDP growth averaged 0.77 percent from 1996 to 2012.
Central bank President Alexandre Tombini said this week that record low unemployment will help fuel economic growth. Tombini added that he sees the economy expanding to 4.5 percent in the first quarter of 2013 from a year earlier.
Finance Minister Guido Mantega also added that the government would be "satisfied" if Brazil's economy exceeded last year's total growth rates of 2.7 percent.
The country has large and growing agricultural, mining, manufacturing and service sectors and has acquired a strong position in the global economy.
Brazil bailing out Europe
Brazil, like the rest of Brics have now got a position where they can make demands on Europe at the G20 Summit, due to their collective economic firepower.
While the rest of Europe have a long and complicated battle to bail each other out and contain the sovereign debt contagion, the Bric countries are arguing that they should be given a bigger role in the governance if the International Monetary Fund (IMF) is going to send billions to troubled countries out of the "firewall" rescue package.
Over the last 70 years, Europeans have traditionally led the IMF but the tides are changing.
Over $85bn worth of the IMF's "firewall" fund comes from developing countries. Out of that China pledged $43.8bn, while India, Mexico, Brazil and Russia each delivered an extra $10.2bn each.
Meanwhile, the US has refused to contribute a single amount, citing "serious restrictions of a legal and political nature."
Challenges to overcome
Rapid growth needs efficient management.
While Brazil has managed to become more powerful in economic sway over the last decade or so, 2011 highlighted some key hurdles that the country needs to overcome.
GDP did slow, albeit still more favourable than many Western countries, but the country failed to cope with the challenges posed by its boom over the past decade.
Despite, simplifying tax codes for foreign investors, levels of investment shrank in the first quarter of this year.
Meanwhile, the Brazilian government forecast GDP growth rates to exceed 2.7 percent this year, Credit Suisse, now infamously, predicted only a 1.5 percent growth rate for this period.
Credit Suisse said that weak industrial production and slowing investment are the reasons for its bearish outlook.
"The high global uncertainty and the low probability that we attribute to a significant expansion of the economy in the coming quarters justify the cut in our growth forecast," said Credit Suisse.
While Brazil's finance minister Mantega dubbed Credit Suisse's assessment "a joke," market consensus has forecasted a 2.3 percent GDP growth rate for this year and has highlighted the government's need for a growth plan.
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